Delta Air Lines DAL kicked off the second-quarter 2023 earnings season for the airline industry on Jul 13. This Atlanta-based carrier reported better-than-expected earnings per share and revenues, driven by a buoyant air travel demand scenario. Low fuel costs also aided results.

Moreover, the company lifted its earnings per share guidance for the current year. Delta now expects 2023 earnings (on an adjusted basis) in the band of $6-$7 per share (the earlier view was $6 per share).  Buoyant air travel demand also aided results of two other S&P 500 airline companies that have reported second-quarter 2023 numbers so far.

The same tailwinds should help entities like Southwest Airlines LUV, JetBlue Airways JBLU and Copa Holdings CPA post better-than-expected earnings per share for the June quarter.

Let’s delve deeper into the factors that are likely to boost the second-quarter results of the sector participants yet to announce earnings.

With air travel demand bouncing back strongly from the pandemic lows, results are likely to be impressive. People are again resorting to air travel as they resume their normal activities. Strong passenger volumes are likely to drive results of the yet-to-report airline companies. With the summer holiday period falling partially in the June quarter, passenger volumes are likely to have witnessed an upside.

It is well documented that air travel demand is particularly strong on the leisure front. What is more encouraging is that international demand is also bouncing back nicely.

The decline in expenses on fuel represents another tailwind for the industry. Notably, oil price declined 6.6% in the April-June period. This bodes well for the bottom-line growth of airlines. This is because fuel expenses are a significant input cost for the aviation space.

Here’s How to Pick the Right Stocks

Multiple airline stocks are likely to report earnings in the coming weeks. Amid this huge population, it is always a daunting task for investors to pick a winning basket of stocks with the potential to deliver better-than-expected earnings.

While there is no foolproof method of choosing outperformers, our proprietary methodology — the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — helps identify stocks with high chances of delivering a positive surprise in their upcoming earnings announcement. Our research shows that for stocks with this perfect mix of elements, the odds of an earnings beat are as high as 70%.

The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Our Choices

Southwest Airlines is based in Dallas. LUV has an Earnings ESP of +2.58% and a Zacks Rank of 3, currently. LUV is slated to report second-quarter 2023 results on Jul27.

Buoyant passenger revenues are likely to aid Southwest Airlines’ results in the to-be-reported quarter. We expect passenger revenues in the to-be-reported quarter to increase 3.2% from the second-quarter 2022 actuals. Low fuel costs are also likely to have aided LUV’s performance. Management expects economic fuel costs per gallon to be $2.55 in the June quarter, much below $3.36 reported in second-quarter 2022.

JetBlue Airways has an Earnings ESP of +12.50% and a Zacks Rank #2. JBLU will release results on Aug 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Like LUV, upbeat air-travel demand and declining fuel costs are expected to have aided the second-quarter performance of this Long Island City, NY-based low-cost carrier. Management expects total revenues in second-quarter 2023 to increase in the 4.5-8.5% range from second-quarter 2022 actuals. Average fuel cost per gallon in the June quarter is estimated to be between $2.75 and $2.90 by the company. The mid-point of the guided range is much below $4.24 per gallon reported by JBLU in second-quarter 2022. We expect fuel cost per gallon in the to-be-reported quarter to be $2.76.

Copa Holdings currently has an Earnings ESP of +0.83% and a Zacks Rank #2. CPA will release results on Aug 9. Like our other two choices, upbeat air travel demand and low fuel costs are expected to have aided the second-quarter performance of this Latin American carrier. We expect passenger revenues in the to-be-reported quarter to increase 12.5% from the second-quarter 2022 actuals.

Delta Air Lines, Inc. (DAL): Free Stock Analysis Report

Southwest Airlines Co. (LUV): Free Stock Analysis Report

JetBlue Airways Corporation (JBLU): Free Stock Analysis Report

Copa Holdings, S.A. (CPA): Free Stock Analysis Report

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